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Microeconomics of Competitiveness: Firms, Clusters, and Economic Development

Submission of Assignment Student : Mas Wigrantoro Roes Setiyadi NPM : 8605210299 Program : S3 – Ilmu Manajemen – Pasca FEUI Date of Submission : September 13, 2005

Case: Finland and Nokia Assignment: 1. How was Finland able to move from a sleepy economy to one of the most competitive nations in the world by the end of the 1990s? 2. How was Finland able to become a world-leading nation in mobile communications? Why did this cluster emerge rather than others? 3. Why did Nokia become the world leader in mobile handsets? 4. What are the critical challenges for the Finnish government in 2001? For participants in the Finnish mobile communications cluster? For Nokia? 5. Given telecom downturn, what should the government do next? What should the private sector do?

Answers: 1. Competitiveness of the nation does not lie on the government but rather depends on the capacity of its industry to innovate and upgrade (Porter, 1998). It is believed with innovation and upgrade industry as aggregate of companies would lead to increasing level of productivity. Porter emphasizes the importance of productivity as the prime determinant of a nation’s long-term standard of living. In most situations, industry will need government involvement to play its roles as facilitator (Musgrave, 1989) or through making public policy (Grindle & Thomas, 1991). However, the less the government gets involved in the economy, the better it is for the economy (Yoshihara, 2000). Within these controversial ideas on how the government should take roles in economic development, Finland’s government implemented various policies, which improved industry performance.

In response to bad economic condition in early 1990s, Finland government adopted tight macroeconomic policy; this is among others carried out by cutting public expenditure to nearly 105 of GDP, to make budget surpluses by the end of 1990s. In addition, monetary...